Value Added Tax

NOEL CHRISTOPHER G. BELLEZA

GENERAL PRINCIPLES
NORMAL VAT TRANSACTIONS
TRANSITIONAL INPUT TAX CREDITS
PRESUMPTIVE INPUT TAX CREDITS
WITHHOLDING OF CREDITABLE VALUE-ADDED TAX
 Value Added Tax
VAT stands for Value Added Tax. VAT is a type of
sales tax which is levied on consumption on the
sale of goods, services or properties, as well as
importation, in the Philippines.
To simplify, it means that a certain tax rate (0%
to 12%) is added up to the selling price of a
goods or services sold. It is also imposed on
imported goods from abroad.
Characteristics of Philippine VAT
1. It is an indirect Tax
The amount of tax may be shifted or passed on by the seller
to the buyer , transferee or lessee of goods, properties or
services
Impact of Taxation
On the seller upon whom the tax has been imposed in the
first instance
Incidence of Taxation
On the final consumer who bears the burden of the tax
Characteristics of Philippine VAT
2. It is a tax on value added of the tax payer.
It is the value added to the raw materials or to
the purchases, other than the labor component
of the goods or service, by the producer, before
its sale.
Characteristics of Philippine VAT
3. It is a transparent form of sales tax
The Law requires that the tax be shown in the VAT invoice or
receipt.
4. It is a broad-based tax on consumption of goods, properties
or services in the Philippines
There is VAT on every stage of the taxable sales of the goods, properties or services.
Characteristics of Philippine VAT
5. It is collected through the tax credit method
(sometimes referred to as the invoice method)
The input tax is shifted by the seller to the buyer is credited against the buyers output
taxes when he is in turn selling the taxable goods, properties and services.
Characteristics of Philippine VAT
6. Itdoes not cascade ( Tax on Tax) hence there is no tax
pyramiding
Cascading Tax passed on by the previous selling, which is
now a component of gross selling price/ receipts of the seller
is again subjected to Tax.

7. It adopts the tax-inclusive method

Unless otherwise stated, any price charged by a VAT
registered person shall be deemed to include the VAT
Charged.
Characteristics of Philippine VAT
8. It follows the Destination Principle / Cross Border
Doctrine
Goods and services are taxed only in the country
where these are consumed, and in connection with
the said principle, the Cross Border Doctrine
mandates that no VAT shall be imposed to form
part of the cost of goods destined for
consumption outside the territory border of the
taxing authority.
To Whom is VAT imposed/ Who are
required to be VAT Registered
Any person or entity who, in the course of his trade or business, sells,
barters, exchanges, leases goods or properties and renders services
subject to VAT, if the aggregate amount of actual gross sales or receipts
exceed One Million Nine Hundred Nineteen Thousand Five Hundred
Pesos (P1,919,500.00)
Any person, whether or not made in the course of his trade or business,
who imports goods
A person required to register as VAT taxpayer but failed to register
 3 Types of VAT and Tax Rates
VAT 12%
VAT Zero Rated
VAT Exempted
 VAT 12%
As a rule, gross receipts from services
rendered in the Philippines by a Value
Added Tax registered seller is subject to
12% value added tax (VAT). Such 12% value
added tax in the Philippines is passed on by
the seller to the buyer of service in the
Philippines.
Persons Liable for VAT
Any person who in the ordinary course of the trade or
business
Sells , Barters, or exchanges goods or properties ( seller or
transferor), leases goods or properties
Renders Services
Imports Goods (importer) The person who brings goods
into the Philippines, whether or not it is made in the course
of business or trade
VAT Person
Refers to any person liable for the payment
of VAT whether registered or registrable
Any person who engages in transactions
subject to VAT
Importers of goods, whether or not made in the
course of Business
VAT Registered person
VAT Person who:
Registered in accordance with the Law
or
Opted to be registered as a VAT Person
VAT- Registrable Person
Persons who are required to register for Value Added Tax
Refers to any person, who in the course of business, sells, barters of
exchanges government properties, or engages in the sale or
exchange of services, shall be liable to register for VAT if:
His gross sales or receipts for the past 12 months, other than those that are
exempt under Section 109(A) to (U) have exceeded P 1,919,500 or
There are reasonable grounds to believe that his gross sales or receipts for the
next 12 months, other than those that are exempt under Section 109(A) to (U)
will exceed 1,919,500 (NIRC, Sec 236 (G)(1)
VAT- Registrable Person
Any person who is required to register but
failed to do so. As a form of penalty, he
shall not be entitled to claim any input tax
credit, although he is liable to output tax in
his taxable sales.
VAT Exempt Person
He is not liable for the imposition of Output
VAT on its sales, either because
His transactions are not taxable transactions
He is specifically exempt from VAT by specific
provisions of the CODE, by special Laws or by
international Agreements
Who are subject to Value
added tax of 12%?
Value Added Tax of 12%

As a rule, gross receipts from services rendered in the

Philippines by a Value Added Tax registered seller is subject to
12% value added tax (VAT). Such 12% value added tax in the
Philippines is passed on by the seller to the buyer of service in
the Philippines.
Persons engaged on sale of goods and properties
Persons engaged on sale of services and use or lease of
properties
 Normal VAT Transactions 12%
Persons engaged on sale of goods and
properties (12%) of the gross selling
price or gross value in money of the goods
or properties sold, bartered or exchanged
Normal VAT Transactions 12%
There is an actual or deemed sale, barter or exchange of goods
or personal properties for valuable consideration;
The sale is in the course of trade or business or exercise of
profession in the Philippines;
The goods or properties are located in the Philippines and are
for use or consumption therein; and
The sale is not exempt from VAT under Section 109 of NIRC,
special law, international agreement binding upon the
government of the Philippines.
 Normal VAT Transactions 12%
Persons engaged on sale of services and
use or lease of properties
Twelve percent (12%) of gross receipts
derived from the sale or exchange of
services, including the use or lease of
properties
 Normal VAT Transactions 12%
The seller executes a deed of sale, barter or exchange, assignment,
transfer, or conveyance, or merely contract to sell involving real
property
The real property is located within the Philippines;
The seller or transferor is a real estate dealer
The real property is an ordinary asset held primarily for sale or for
lease in the ordinary course of business
The sale is not exempt from VAT under Section 109 of NIRC, special
law, or international agreement binding upon the government of
the Philippines
 Normal VAT Transactions 12%
Persons engaged on importation of goods
Twelve percent (12%) based on the total value used by the
Bureau of Customs in determining tariff and customs duties,
plus customs duties, excise taxes, if any, and other charges,
such as tax to be paid by the importer prior to the release of
such goods from customs custody; provided, that where the
customs duties are determined on the basis of quantity or
volume of the goods, the VAT shall be based on the landed
cost plus excise taxes, if any.
 Transitional Input Tax
Tax payers who become VAT Registered persons upon
exceeding the minimum turnover of 1,919,500 php in
any 12- month period or who voluntarily registers even
if they do not reach the threshold shall be entitled to a
transitional input tax on the inventory on hand as of
the effectivity of their vat registration on the following:
Goods purchased for resale in their present condition
Materials purchased for further processing
 Transitional Input Tax
-Goods which have been manufactured by
the tax payer
-Goods in process for sale or
-Goods and supplies for use in the course
of the taxpayers trade or business as a VAT
Registered person
Transitional Input Tax
- 2% of the Value of the beginning
inventory on hand or
- Actual VAT paid on such goods, materials
and supplies, which ever is higher
Transitional Input Tax
The transitional input tax credit operates to benefit
newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their
beginning inventory of goods, materials and supplies.
During that period of transition from non-VAT to VAT
status, the transitional input tax credit serves to
alleviate the impact of the VAT on the taxpayer.
Transitional Input Tax
At the very beginning, the VAT-registered taxpayer is obliged to remit a significant
portion of the income it derived from its sales as output VAT. The transitional input tax
credit mitigates this initial diminution of the taxpayers income by affording the
opportunity to offset the losses incurred through the remittance of the output VAT at a
stage when the person is yet unable to credit input VAT payments. (Fort Bonifacio
Development Corp. v. Commissioner of Internal Revenue, G.R. Nos. 158885 & 170680, 2
April 2009)
Presumptive Input Tax Credits
Any person or firm engaged in the processing of
sardines, mackerel, and milk, and in manufacturing
refined sugar and cooking oil and packed noodle-
based instant meals shall be allowed a presumptive
input tax creditable against the output tax, equivalent
to 4% of the gross value in money of their purchases
ofprimary agricultural products which are used as
inputs to his production
Presumptive Input Tax Credits
It is given for those engaged in:
Processing of sardines, mackerel and milk and
In the Manufacturing of refined sugar, cooking oil and packed
noodle based instant meals
The Rate is 4% of the Gross Value in Money
They are given this 4% presumptive input tax because the
goods used in the said enumberation are VAT-Exempt
Withholding of Credible Value- Added
Tax
The government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or
- controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and services
which are subject to VAT imposed in Sections 106 and 108 of
the NIRC, deduct and withhold a final VAT at the rate of 5% of
the gross payment thereof. Provided, that the payment for
lease or use of properties to non resident owners shall be
subject to 12% withholding tax at the time of the payment.